Flipper/Rehabber · Chicago, IL · Member since 2018 · 72 posts · 21 votes
I am in desperate need of good advice. I got under contract on a new house back in early February to close April 1st. My current home (live-in flip) went on the market last week. Illinois has just ordered "shelter-in-place," meaning everything is basically shutdown except for essential services. All my showings have cancelled and the only offer I got was $30k under asking citing "corona virus concerns."
I can backout of my deal now, probably lose my $1000 earnest money and be good. OR, I can roll the dice, dump 35k of renovations into this new place while paying two mortgages for god knows how long, and potentially end up selling both homes at a loss.
I need advice bad. Don't tell me COVID-19 doesn't effect the real estate market when people can't even look at homes without breaking the law technically.
I'm not expert on this stuff, fairly new actually. Taking a look at what you have stated, which is little, here is what I see:
1. People are not in the buying mood, you are finding. Cancellations and 1 low offer. Say you continue with your purchase, spend the $35K (can you find any contractor willing to go out to work, since it's non essential), and then put the place on the market. How do you see prospective buyers coming to inspect the property? Will you have competitive buyers even? And how long till renovations are complete? How long will you have to carry that extra mortgage, based on your language you are not comfortable with it for a prolonged period.
2. Or, you could cancel the deal and lose $1000 EM. That to me seems like the biggest win you could have right now.
It's a big risk right now proceeding, I think, based on what you described. Is it such a great deal that you're getting that you can't pass it up? Right now I'm trying to maintain a holding pattern on everything and if I were in your shoes, I think I'd cancel and see if the seller is willing to either refund the EM, or perhaps use it as credit if you resume the purchase down the road.
Another possibility, would the seller consider pushing closing back a couple of months to see how this all plays out?
I'm not expert on this stuff, fairly new actually. Taking a look at what you have stated, which is little, here is what I see:
1. People are not in the buying mood, you are finding. Cancellations and 1 low offer. Say you continue with your purchase, spend the $35K (can you find any contractor willing to go out to work, since it's non essential), and then put the place on the market. How do you see prospective buyers coming to inspect the property? Will you have competitive buyers even? And how long till renovations are complete? How long will you have to carry that extra mortgage, based on your language you are not comfortable with it for a prolonged period.
2. Or, you could cancel the deal and lose $1000 EM. That to me seems like the biggest win you could have right now.
It's a big risk right now proceeding, I think, based on what you described. Is it such a great deal that you're getting that you can't pass it up? Right now I'm trying to maintain a holding pattern on everything and if I were in your shoes, I think I'd cancel and see if the seller is willing to either refund the EM, or perhaps use it as credit if you resume the purchase down the road.
Another possibility, would the seller consider pushing closing back a couple of months to see how this all plays out?
@Kirk R. Haha thanks guys. I think I'm going to ask for a month or two month extension on closing. If they don't grant that then I'm going to back out. MLS just postponed showings here until April 20th
@Kirk R. Haha thanks guys. I think I'm going to ask for a month or two month extension on closing. If they don't grant that then I'm going to back out. MLS just postponed showings here until April 20th
I can see that you are really nervous. This mass response can be pretty destabilising especially when so many of our institutions are engaging with it in the way they are. I wanted to try to offer perhaps some things to reflect on that might help a little bit...
It sounds like you have two pretty distinct challenges in this situation;
1. The effect that your anxiety is having on your ability to make a decision that you feel good about.
2. Deciding on how best to proceed financially.
I am a Clinical Psychologist who is now a Realtor and an investor. This COVID-19 situation is triggering a lot of panic related thinking. Once panic or even anxiety begins to churn it becomes difficult to make decisions that feel good and solid like you do ( hopefully ) when you are calm and secure. So I would suggest you try the following first;
Write a sentence describing the situation, just one sentence on the top of a piece of paper.
Then write down all your separate thoughts about the situation until you have written down absolutely everything.
Hopefully when you have done that you will begin to get some objectivity about how your thinking is holding your reason hostage :) That distancing is sometimes all you need to get a bit clearer and calmer.
Then, continuing to get back to your logical side think:
If I wasn't afraid AT ALL what would I do inside a situation that was presenting these uncertainties?
It sounds like you made the decision to go under contract before you marketed your flip correct? So you were confident it would sell or you didn't need it to sell in order to buy the new house? Or you were banking on not having to hold it for a long time and you could manage the holding costs as long as it wasn't for an extended period right?
So. The problem is the holding costs right? Are you willing to take the risk that the holding costs could go on for an extended period?
Well - just like you said you have no crystal ball and you have now way of knowing how long this situation could go on. So what do we do in those types of situations? We frantically search for a crystal ball? We run around asking everyone for their crystal ball and then when someone says something we like we take them down and steal their crystal ball and leg it?!! No. Ahem.
We calm down and carry on ( there's Churchill coming out again) - we take the anxiety out of the picture and we reason it out. What's a good way to reason out a situation for a completely unprecedented scenario? Well the one thing that we can pretty much guarantee is that the only thing that's guaranteed is that this shall pass.
We decide on priorities; What are my priorities in this situation - getting the new house/ moving out of the flip or ensuring I do not lose money?
In the meantime you could plot out a sequenced scenario ;
If I had to hold it for 3 months what would I do? pay for it, get it rented?
If I had to hold it for 6 months what would I do? etc.
I think when people are saying that the real estate market is not affected by the virus they are meaning that downward pressure on prices and rents tend to lag behind the general market economy and so number changes would take some time to show up but you rightly point out that the buying and selling behaviour has been impacted by the social restrictions and this is very new so I agree that there is an impact albeit temporary.
To respond directly to your concerns about extending - I wrote an offer yesterday and we included a hot off the press COVID-19 Addendum to the contract to mitigate the buyer's exposure if delays resulting from the disruptions caused deadlines to be missed - the traditional Purchase Contract in FL at least has a Force Majeure contingency in it but COVID-19 is not considered a Force Majeure event so you may need to consult with your agent/Attorney about how to get an extension. We have had buyers trying to extricate due to anxiety and this has not worked because the Force Majeure is there to protect against processes not being in place to complete the transaction rather than sentiment changing.
I hope at least some of this has helped a little bit. And I sincerely hope you get some peace of mind. Remember that it is not the circumstances that are the problem it's the way we thing about them :)
In the situation you described, I'd back out and take the $1000 earnest money loss.
Many times thats the cheap money.. I think you have to look at how good a deal is it.. and your personal financial situation
if you had to carry these for any length of time and its going to harm you financially then you take the conservative approach.
If you know its a good deal and you know the world will right itself in about 90 days and your just going to be working on it during those 90 days maybe you go for it.
@Anthony Fecarotta if you have to second guess backing out of the deal and losing $1k, then my guess would be that you may not have enough reserves to carry the property if the downtown extends longer than you anticipate.
If this place also requires renovations, how much contingency do you have in place for cost escalation? Do the numbers still work if your budget bloats by 30-50%?
@Michael King Great advice, thank you. @Kirk R. I appreciate your humor during these times. We've got to be able to keep it light.
serious times require serious amounts of sense of humor! although definitely have to run it through a filter one more time. picture of my latest rehab attached.
